GOVERNMENT OVERSIGHT ON FOREIGN INVESTMENT

Generally speaking, if you are a non-resident intending to make a foreign investment in Korea, your transaction will be regulated by either the Ministry of Economy and Finance (“MOEF”) or the Ministry of Trade, Industry, and Energy (“MOTIE”).

MOEF is the government body that is given the right to permit, regulate, or restrict transactions for the purposes of facilitating foreign exchange transactions under the Foreign Exchange Transactions Act of Korea.

It was not until the late 90’s that MOEF came into play and was designated as the ministry in charge regarding certain types of foreign exchange transactions that qualified as “Foreign Investment” under the Foreign Investment Promotion Act (“FIPA”).

One may assume that the legislative reason behind designating MOTIE, instead of MOEF, as the ministry in charge of Foreign Investment could be that, by placing enforcement of FIPA under the purview of MOTIE, it could enhance coherence between foreign investment and industrial policy in Korea. As a matter of fact, certain benefits provided under FIPA tend to focus on certain sectors of industry or business that are established within Foreign Investment Zones. Notwithstanding, even those that do not fall under the said industry sectors or business categories can still benefit from the fact that their foreign-invested enterprises will enjoy protection and benefits provided to domestic enterprises, as well as guarantee of remittance of proceeds to a foreign country, all in accordance with the Korean law.

Foreign Investment under FIPA is regulated by MOTIE. However, foreign investors usually do not directly contact MOTIE; rather, the minister of MOTIE delegates authority to the heads of foreign investment-related agencies as prescribed by presidential decree, including, without limitation, the governor of the Bank of Korea, and the head of a foreign exchange bank.

Accordingly, for filing reports on Foreign Investment, any changes in the terms thereof, including, without limitation, shutting down of a foreign-invested enterprise or the retrieval of Foreign Investment, foreign investors will most likely interact with banks unless under special circumstances. It is noteworthy that foreign investors shall, while interacting with banks, heed caution as if interacting with the ministry itself, as penalties for non-compliance will be enforced under the authority of FIPA.

While the severity has somewhat eased in recent times, the consequences for failing to comply with FIPA regulations remain significant.

If you acquire shares or ownership interests in a Korean company, without a proper report filed to the minister of MOTIE, you will be subject to an administrative fine, which is capped at KRW10 million.

If you do make a report, but false documents are included therein, you may become subject to punishment by imprisonment with labor for no more than three years or by fine capped at KRW300 million.

If you do make a report, and all documents are accurate and complete, but if the object of the Foreign Investment, i.e., the fund, is later used for a purpose other than initially reported, without filing a report on such changes made, you will be subject to punishment by imprisonment with labor for no more than five years or by a fine capped at KRW500 million.

In conclusion, adherence to FIPA is crucial for foreign investors in Korea to avoid significant penalties. It is imperative for investors to diligently follow reporting procedures and ensure the accuracy and integrity of all submitted documents.

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Andrew Baek
02-2038-2339 / abaek@inpyeonglaw.com
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